Cut costs to win customers

Opinion | It’s easy to find extra things you could do for customers, but they usually come at a cost. Can you create customer value and grow business by taking something away instead?

Nintendo’s Wii gaming console is less powerful than others, its graphics not as good, its games simpler and it offers fewer features, yet it is the world’s most profitable console. Why was it so successful?

Nintendo created new value for non-customers by cutting out expensive R&D and focusing on playability. Xbox and PS2’s huge R&D expenses meant they lost money on each console sold. Nintendo turned a profit on each console.

Wii opened up a new group of buyers; families and older gamers who didn’t want conventional, expensive features. In fact, those features turned them off. As a result, Wii was positioned in a much larger market, away from the smaller one of traditional gamers and away from its competitors.

So cost-cutting and customer value creation are not mutually exclusive. Cutting can create value and draw in new customers if it answers unmet needs – simplification, ease of use, user pays, higher utilisation, lower pricing and so on.

This has even worked in industries that have been in their death throes or experiencing commoditisation.

The circus industry during the 1980s looked dead. Cirque du Soleil breathed new life into it by cutting out the most expensive components: animals, partly because of the huge costs of keeping them; the costly “three-ring" concept; and expensive, big-name circus performers. With the traditional circus stripped bare, Cirque du Soleil created new value with a production combining elements of art and theatre, bringing a new crowd to the circus – theatre-goers prepared to pay theatre-style prices to experience a new era of circus. But cost-cutting was Cirque’s starting point.

These examples show the power of combining cutting costs while simultaneously renovating their offering to achieve “value innovation". There are many other examples: Apple, Curves gyms, IKEA, Dell, Ford, Kimberly-Clark, Virgin and Walmart are just a few.